Tesla is reportedly considering separating its China business as part of preparations for a potential merger with SpaceX, according to a report by The Wall Street Journal, although Tesla China has denied the claims.
Citing people familiar with the matter, the report said some Tesla executives have been instructed to prepare for a separation of the company’s China operations ahead of a possible combination with SpaceX.
Multiple Separation Options Reportedly Under Review
According to the report, Tesla’s advisers have discussed several possible scenarios for the China business, including a spinoff, sale or closure. It added that the plans remain under consideration and could change.
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The report also said Chief Executive Officer Elon Musk had previously directed executives to organize Tesla’s U.S. and China operations with a strict separation, aiming to reduce operational risks arising from geopolitical tensions between the two countries.
Among the reported concerns were Tesla’s reliance on Chinese-produced lithium iron phosphate (LFP) battery cells and the possibility that a conflict involving Taiwan could disrupt semiconductor supplies. Preparations were reportedly intended for the 2026–2027 timeframe.
However, Chinese financial news outlet Yicai later cited a Tesla China insider as saying the report was untrue, without providing additional details.
Merger Could Face Regulatory and Strategic Challenges
The Wall Street Journal noted that a potential merger could face significant hurdles because SpaceX is a major U.S. defense contractor, with activities including classified satellite launches and communications services for government and military customers.
According to the report, such a transaction could raise concerns over ownership of Tesla’s manufacturing operations in China and the handling of data generated by approximately two million Tesla vehicle owners in the country.
Executives have also reportedly discussed creating a separate export entity for vehicles produced at Gigafactory Shanghai, alongside independent office systems that would restrict access between China-based employees and other parts of the business.
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Shanghai Remains Central to Tesla’s Global Operations
Any restructuring of Tesla’s China business would have significant implications for the company.
Gigafactory Shanghai is Tesla’s largest vehicle manufacturing facility, with annual production capacity of around one million vehicles. The plant supplies both the domestic Chinese market and export destinations across Europe and the Asia-Pacific region.
Unlike most foreign automakers operating in China, Tesla owns its Chinese vehicle manufacturing business outright rather than through a joint venture.
The company has also established an extensive domestic supply chain, stating that more than 95% of the components used in China-built Model 3 and Model Y vehicles are sourced locally through a network of more than 400 suppliers.
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